We recently compiled a list of the 10 Best Penny Stocks To Buy According to the Media. In this article, we are going to take a look at where NIO, Inc. (NYSE:NIO) stands against the other penny stocks.

Penny stocks are those that trade below the price of $5. These stocks represent companies with smaller market capitalization, high risk, and high volatility. Risk-tolerant investors find potential for above-average returns in penny stocks, however, investing in these stocks requires caution and care.

Expected Trends for Small Cap Stocks

On July 17, Chris Retzler, Needham’s small-cap growth portfolio manager, appeared on CNBC where he expressed optimism for the small-cap companies and suggested that we are in a cycle that will prove to be good for many small-cap companies. The Russell 2000 index jumped 3.5% higher on the July 16, hitting the highest levels since January 2022, and was up more than 10% in the previous week. This was one of the biggest rallies investors have seen in the past 4 years.

Retzler believes that small cap stocks have been waiting for a drop in inflation and interest rate cuts. With inflation easing, interest rates are expected to go down as well. He also sees the market broadening, with small companies that have underperformed benefiting from a drop in inflation.

Retzler agrees with Fundstrat’s Tom Lee’s, who sees the Russell 2000 gaining 40% by the end of summer. He believes that the liquidity of small cap companies gives them an edge as it does not take a lot of money to push the stock prices higher, and some expansions by these companies followed by lower interest rates can prove to be good for Russell 2000 companies. We have discussed Tom Lee’s views on how favorable current market conditions are for small-cap companies in 10 Best NASDAQ Penny Stocks To Invest In.

Moreover, Ryan Detrick, who is the Chief Market Strategist at Carson Group also presented his bullish thesis for small and mid-cap companies. He believes that small and mid-cap are going to lead the market in the second half of the year. While addressing the earnings capability of these companies, Detrick said small-cap companies will outperform large-cap companies in 2025 and 2026. As per estimates, S&P 600’s earnings were 4.1% in 2024, whereas S&P 500 earnings were 12.7%. However, moving forward analysts expect S&P 600’s earnings to be at 17.7% in 2025, surpassing estimates of 14.2% for the S&P 500. Detrick believes small-cap stocks now look cheap, economic conditions are favorable, and any interest rate cuts that come along the way will further benefit them.

Now that we’ve discussed what experts think about small caps, let’s now look at the 10 best penny stocks to buy according to financial media.

Our Methodology

To compile our list of the best penny stocks to buy according to media, we aggregated 50 plus penny stocks from financial media websites on the internet. We then selected the top 10 penny stocks that were the most widely held by hedge funds, as of Q1 2024. The list is in ascending order of the number of hedge funds holders in each stock.

Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

NIO, Inc. (NYSE:NIO)

Number of Hedge Fund Holders: 19

NIO, Inc. (NYSE:NIO) is a leading automotive company that focuses on designing, manufacturing, and selling smart electric vehicles in China. The company’s vehicle line-up is not only restricted to sedans but also includes 5 and 6-seater SUVs. In addition to designing and selling smart electric vehicles, NIO, Inc (NYSE:NIO) also provides home, mobile, and public charging facilities, maintenance and repair, insurance, and used vehicle services.

What sets NIO, Inc. apart from its competitors is the company’s ability to address the major pain points of electric vehicle customers i.e. battery maintenance and swapping services. Through its NIO Power operations, the company offers a 3-minute battery swap for a fully charged battery without even the need for the driver to get out of the car. The company has been expanding its battery-swapping operations through several strategic partnerships. NIO, Inc. has partnered with Chinese automakers including Changan, Geely, Cherry, and JAC to develop and expand its battery swap network in China. As a result of these partnerships, the company has installed more than 2,300 swapping stations across the country. Although only a small proportion of these stations are breaking even currently, management believes that this investment is at least 2 years ahead of market demand and will reap benefits once demand starts to pick up.

The company’s May 2024 deliveries went up by 233.8% year-over-year, consisting of 12,164 premium smart electric SUVs and 8,380 premium smart electric sedans. However, revenue fell 7.2% year over year during the first quarter of 2024, mainly due to lower average selling prices and a seasonal decrease in delivery volumes. On the bright side, the other sales segment of the business which includes sales of parts, after-sale service and professional power stations was up by 5.2% year over year to RMB 1.5 billion ($206.2 million), indicating a strong customer base.

Should you invest in NIO, Inc. (NYSE:NIO)? Here’s the takeaway: Not only is the company expanding its competitive edge of battery swapping facilities through strategic partnerships but it has increased its deliveries substantially over the past year. The company also quoted improved vehicle margins of 9.2%, up from 5.1% during the first quarter of 2023. NIO, Inc. (NYSE:NIO) has potential to run, analysts’ 1-year average price target points to a 39% upside from current levels.

The stock was held by 19 hedge funds during Q1 2024 with total stakes worth $79.322 million.

Overall NIO ranks 8th on our list of the best penny stocks to buy according to the media. You can visit 10 Best Penny Stocks To Buy According to the Media to see the other penny stocks that are on hedge funds’ radar. While we acknowledge the potential of NIO as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NIO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

Read Next: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and Jim Cramer is Recommending These 10 Stocks in June.

Disclosure: None. This article is originally published at Insider Monkey.